In the Wake of the Crisis―Leading Economists Reassess Economic Policy

In 2011, the International Monetary Fund invited prominent economists and economicpolicy makers to consider the brave new world of the post-crisis global economy. The result is abook that captures the state of macroeconomic thinking at a transformationalmoment.

The crisis and the weak recovery that has followed raise fundamentalquestions concerning macroeconomics and economic policy. For instance, to what extent are financialmarkets efficient and self-correcting? How crucial is low and stable inflation for growth and thereal stability of the economy? How strong is the case for open capital markets? Too often, thestandard models provided insufficient guidance on how to respond to the unprecedented situationscreated by the crisis. As a result, policy makers have been forced to improvise. What to do wheninterest rates reach the zero floor? How best to provide liquidity to segmented financialinstitutions and markets? How much to use fiscal policy starting from high levels of debt?

These top economists discuss future directions for monetary policy, fiscalpolicy, financial regulation, capital account management, growth strategies, and the internationalmonetary system, and the economic models that should underpin thinking about critical policychoices. Among the new realities they consider are the swing of the pendulum toward regulation; theneed for new theoretical approaches, incorporating advances in agency theory, behavioral economics,and understanding of credit markets and finance based on theories of imperfect information; and theimportance for macroeconomic policy to target not just inflation but also output and financialstability.

Olivier J. Blanchard is Economic Counselor and Director of the Research Department at the International Monetary Fund. He is the author of Macroeconomics, among other books, and coauthor of Lectures on Macroeconomics (MIT Press). David Romer is Herman Royer Professor of Political Economy at the University of California, Berkeley, and author of Advanced Macroeconomics. Michael Spence, co-recipient of the 2001 Nobel Prize in Economics, is Professor Emeritus of Management at Stanford University's Graduate School of Business and Professor of Economics at New York University's Stern School of Business. He served as Chairman of the Commission on Growth and Development from 2006 to 2010 (the life of the commission). He is the author of The Next Convergence: The Future of Economic Growth in a Multispeed World. Joseph E. Stiglitz, co-recipient of the 2001 Nobel Prize in Economics, is University Professor at Columbia University. He served as Chairman of the U.S. Council of Economic Advisors in the Clinton administration, and from 1997 to 2000 as World Bank Chief Economist and Senior Vice President in Development Economics. He is the author of Freefall: Free Markets and the Sinking of the World Economy, Globalization and Its Discontents, and other books.